How bureaucratic dark matter is swallowing our wealth

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At every turn businesses are weighed down by red tape that prevents growth, discourages job creation, and sucks resources away from productive activity. Adding to the burden is the unknown nature of regulation that requires businesses to constantly be involved in researching regulation and the intentions of multiple regulators.

Like dark matter that doesn’t emit light and cannot be directly observed, there are many forms of regulation that have a significant regulatory effect yet escape adequate scrutiny. In the Institute of Public Affairs’ report, Regulatory Dark Matter: How Unaccountable Regulators Subvert Democracy by Imposing Red Tape without Transparency, I define regulatory dark matter as “actions taken by departments and agencies that are subject to little scrutiny or democratic accountability.”

Parliament delegates the power to create regulation, allowing regulators to expand the red tape burden without the restriction of having to pass legislation through parliament. Legislative instruments are implemented by a process that lacks direct democratic accountability, and quasi-regulation that lacks official legal status but none the less has a restrictive effect in practice, is layered on top.

Looking at just five regulators in the banking and finance sectors the report finds 75,976 pages of regulatory dark matter. To put that number in perspective, the page count is more than 52 times that of Tolstoy’s War and Peace. It is also eight times larger than the legislation passed by parliament that grants powers to these agencies. This means, that for every page of legislation we can expect eight more pages to be added by the regulators.

A large amount of regulatory dark matter is made up of quasi-regulatory documents including regulatory guides, bulletins, and information sheets that clarify and interpret official regulations.

These documents combine to create a mountain of material weighing down on businesses. While they may lack official legal status, these documents cannot be safely ignored as they provide insight into how the regulator intends to enforce regulations. Guidance material may assist businesses with understanding existing regulation, but they also contain an additional level of interpretation.

The power granted to unelected bureaucrats has contributed to Australia being ranked 77th out of 140 countries for the burden of government regulation by the World Economic Forum. Agencies are faced with the incentive to expand their power and size through rulemaking that is unchecked by direct democratic accountability. This has seen public sector employment increase from 12 to 15 per cent of the workforce over the last five years.

But the problem really begins with the bias toward government intervention on the part of our politicians. When the government takes an active role in administrating licenses, controlling wages and employment contracts, handing out subsidies, and promising government guarantees, the perpetuation of a large bureaucratic state is unavoidable. To administer this level of intervention Parliament must delegate powers to technocrats to deal with the intricacies of designing and implementing regulation.

To address Australia’s red tape problem, governments need to take a lighter approach to regulation. Regulation is too often hastily introduced to combat problems that can often be adequately dealt with by the market and existing law.

To reduce red tape, governments at all levels should implement a one-in-two out policy that requires politicians to identify two regulations to be removed when proposing new regulation. This would weed out bad regulation and erect a hurdle for the introduction of new regulation.

All new regulation needs to be designed in a way that reduces the ability of unelected bureaucrats to expand their powers. This means reducing vague language that allows a high level of discretion on the part of the regulators. Clear language in legislation and regulation that minimises the use of legalese would also reduce the need for detailed guidance documents.

Politicians need to hold the agencies that operate on delegated power from Parliament accountable for their role in increasing the red tape burden. Regulatory dark matter ought to be recognised and addressed. It undermines business investment, reduces economic opportunity, and, worst of all, it is undemocratic.

Kurt Wallace is a Research Fellow at the Institute of Public Affairs. His report Regulatory Dark Matter: How Unaccountable Regulators Subvert Democracy by Imposing Red Tape without Transparency can be downloaded here.